PH banks healthiest in SEA - S&P

By Ted P. Torres, The Philippine Star

Posted at Feb 14 2014 08:14 AM | Updated as of Feb 14 2014 04:14 PM

MANILA - The Philippine banking system is expected to remain healthy in 2014 while other Southeast Asian banks “will face tougher operating conditions,” according to Standard & Poor’s Rating Services (S&P).

In a report released yesterday, the global credit rater said banks in most Southeast Asian countries will face tougher operating conditions in 2014 because of lower economic growth prospects and tighter credit conditions.

But the healthy domestic economy in the Philippines favors further healthy growth for the country’s banking system, it added.

Last year, the country’s gross domestic product (GDP) expanded by 7.2 percent, surpassing the government target of six- to seven-percent growth.

The financial sector grew 9.9 percent in the fourth quarter alone, behind a stable business environment, a manageable inflation rate of 3.7 percent, and low interest rates. Aid coming in for reconstruction and rebuilding of the devastation caused by Super Typhoon Yolanda likewise induced an increase in financial activity.

The report said the banking systems of Singapore, Thailand, and the Philippines would be generally stable, although some banks’ financial performance would deteriorate in 2014.

The international rating agency noted that economic imbalances from high property prices in Malaysia could strain households’ debt servicing capacity when the credit cycle turns.

It said Malaysian banks are particularly vulnerable to deterioration in household health, given that the household sector accounts for about 57 percent of the banking system’s total loans. Credit risks are also high, given Malaysia’s fairly large private-sector debt burden relative to the country’s modest income levels.

“We expect the government’s policy intervention to curb the rise in property prices and household debt. Downgrades would be likely if our base-case expectations fail to materialize,” the rating agency added.

Meanwhile, Vietnamese banks’ asset quality, profitability, and capitalization will remain weak, even as the economy recovers. The true extent of asset quality problems is understated due to poor disclosures and lenient classification standards.

“A continued deterioration in Vietnamese banks’ asset quality or capitalization could lead to downgrades. We believe well-executed banking reforms and consolidation are vital for the long-term sustainability of Vietnam banks,” the report stated.

Earlier, Moody’s Investors Service said that the continued capital build-up of Philippine banks reflect its stable state.

“These capital-raising initiatives reflect a broader industry trend toward capital optimization in response to the implementation of Basel III in the Philippines.

The country introduced the new rules in a single step rather than the gradual phase-in approach that other countries are using,” it said.

Majority of the leading banks started to dispose of non-core assets and replace non-complaint Basel III securities with core equity or Basel III-compliant securities.

“These actions are credit positive because they improve the quality of capital and come as Philippine banks’ lending grows at a rate of 15 percent or more,” Moody’s added.